Environmental and economic effects of China's carbon market pilots: Empirical evidence based on a DID model

Abstract

This paper investigates whether the China ETS policy has achieved carbon emission reduction at the expense of economic development. Moreover, we are interested in unmasking the role of the institutional factors adopted by the ETS pilots in their ETS effects. Using the province-level panel data during the 2008–2016 period. we employ the DID model to compare carbon emissions and economic development between the ETS and non-ETS regions and between the pre- and post-ETS periods. Some novel empirical findings emerge. First, compared with the non-ETS areas, the ETS policy has significantly reduced carbon emission in the ETS areas. This emission reduction has not come at the cost of economic development. Second, the ETS policy leads to a decline in carbon intensity and fossil fuel energy consumption relative to all energy types. Lastly, some heterogeneity across markets arise. The Beijing carbon market performs the best among all pilots in terms of achieving targets of carbon reductions, followed by the Hubei carbon market.